Question
Allisons Dresswear Manufacturers is preparing a strategy for the fall season. One alternative is to expand its traditional ensemble of wool sweaters. A second option
Allisons Dresswear Manufacturers is preparing a strategy for the fall season. One alternative is to expand its traditional ensemble of wool sweaters. A second option would be to enter the cashmere sweater market with a new line of high-quality designer label products. The marketing department has determined that the wool and cashmere sweater lines offer the following probability of outcomes and related cash flows.
Expand Wool Sweaters Line | Enter Cashmere Sweaters Line | ||||||||||||
Expected Sales | Probability | Present Value of Cash Flows from Sales | Probability | Present Value of Cash Flows from Sales | |||||||||
Fantastic | .5 | $ | 221,000 | .3 | $ | 341,000 | |||||||
Moderate | .2 | 192,000 | .4 | 272,000 | |||||||||
Low | .3 | 88,600 | .3 | 0 | |||||||||
The initial cost to expand the wool sweater line is $142,000. To enter the cashmere sweater line, the initial cost in designs, inventory, and equipment is $102,000. Calculate net present value if, Allisons Dresswear Manufacturers decides to: (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest whole dollar.)
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